Whether it’s to build a passive income or to escape the 9:00 to 5:00 rat race, more and more people across the UK are turning to property investing and development as a way of making money work for them, not for them working for money. It sounds easy, but property is not a game for the faint-hearted, with hundreds of thousands, if not millions of pounds at stake. The rewards can be great. But if it goes wrong, it can go very, very wrong. You often need financial experience and knowledge to take that deal over the line.
And that’s where we come in. In this series, we give budding property developers the chance to pitch their deals to our five seasoned property professionals, John Howard, Helen Chorley, Paul Mahoney, Nicholas Wallwork, and Ranjan Bhattacharya, or who we call our property investment angels.
Our contestants are in with the chance to walk away with the backing of someone who will bring both finance and experience to the deal. Will our angels be sending them up to the penthouse? Or will they be heading straight for the basement? I’m Elizabeth Warburton and you’re watching Property Elevator.
Welcome to the second episode of Property Elevator. We had some fantastic deals come through yesterday, and a lot of happy faces. Let’s see what happens in today’s episode.
John Howard:
If it goes wrong, the market drops a little bit or whatever, you and I are going to be underwater. You’re not going to have anywhere to live, because I’m going to take that off you.
Ranjan Bhattacharya:
I operate by a simple postcode theory, where if it has two letters and a one, then that’s the center of town, wherever it is.
Helen Chorley:
I’ve got stuff that I was told was going to be done in kind of 12, 18 months, four years on. Yeah, so anyway.
Paul Mahoney:
Just this particular project, the way it’s set up, the margin just isn’t good enough.
Nicholas Wallwork:
I think you’re highly investible. I think you’re going to go on and do great things in property off your own back, rather than working for someone else.
Elizabeth Warburton:
Hi, Masud. Welcome to Property Elevator.
Masud Saeedi:
Hi, Lizzie.
Elizabeth Warburton:
How you doing?
Masud Saeedi:
I’m doing great, thanks.
Elizabeth Warburton:
Can you tell us a little bit about the deal and what you’re after today from our angels?
Masud Saeedi:
It’s a three bedroom, semi attached house over in West London. I’m looking to just add another bedroom and another bathroom, fully renovate the property, as it’s in sort of distressed condition at the moment. Hopefully looking to flip it or sell it on for profit following completion of the project.
Elizabeth Warburton:
How much investment are you looking for today?
Masud Saeedi:
410,000. Looking for 100% of the financing of the build costs and the purchase, hold, and sale costs, with a profit split at the end.
Elizabeth Warburton:
Well, good luck.
Masud Saeedi:
Thank you.
Elizabeth Warburton:
Let me know how you get on at the end.
Masud Saeedi:
Cheers, Liz.
John Howard:
Masud is coming in now. He would lik eus to invest in a semi-detached derelict property. Shall we find out what the story is? Welcome. Thank you very much for coming today. Could you please say a bit about yourself, your experience, and what the deal is you wish us to fund today?
Masud Saeedi:
My name is Masud. I am a physiotherapist. And today, I’m here to seek 100% financing for a project. It’s a three-bedroom semi-attached property over in West London. Gross development value is around about 510,000, with a profit margin estimating around 100, gross profit around 100,000.
Masud Saeedi:
Outside of my job, I run Facebook advertising campaigns for clients. It’s a business that I started outside of my job. So, it’s generating leads for small to medium sized businesses. I’ve just completed my first refurbishment project. It was a two-bedroom mid-terrace house in Liverpool. It was on the market last year in October, 2019 on the open market. It really struck my eye because it was within my budget. It was in a good area in Liverpool. I had done my research. I’d been there. And I felt it was a good opportunity for me to take advantage of.
Masud Saeedi:
So, around about January time, I followed up and the tenants had vacated the property. And I was able to go up and get a viewing. Offered and got rejected. My second offer got accepted. Around about three months into the conveyancing process, I kind of realized that I wasn’t getting a good deal. I was basically paying market value for this house. So, I realized that I need to go back and renegotiate or I needed to pull out.
Masud Saeedi:
I went back to the agent and I said to them that I want to pull out of the deal. And this was literally just a few days before the end of the day of completion. So, the agent came back to me within about 20 minutes. And obviously the vendor was a little bit gutted that I had done that. They reoffered me a price. It was about 5,000 less than the purchase price, which was already agreed. I said it was too high. It was at that time they also said to me that the vendor was in mortgage difficulties. Then I thought, now is the time to take advantage. So, I went back and renegotiated. We ended up on a 70K purchase price.
John Howard:
So, what you’re really saying, you’ve got a bit of a feel for refurbishing and improving, adding value and improving. And what I like about you is that you are a true entrepreneur. You’ve got lots of lovely things going on, which is great. And you’ve learned from that first project. This is your second project.
Masud Saeedi:
Yes.
John Howard:
So, tell us a bit more about the second project, really in terms of the cost. How much you’re spending on it, what are you buying it for and what you’re spending on it?
Masud Saeedi:
This deal had only arisen in the past one and a half weeks. I was actually going to present a different deal today. But I realized that the vendor-
John Howard:
This one’s better.
Masud Saeedi:
This one’s better.
John Howard:
Excellent.
Masud Saeedi:
And it was more likely to happen.
John Howard:
Great.
Masud Saeedi:
The purchase price hasn’t been agreed yet. The reason why is, we don’t have access to the inside of the property. And I haven’t made an offer as of yet.
John Howard:
That’s good, because in a way, because with the experience and the advice we can give you now, that can be hopefully negotiated better.
Masud Saeedi:
It’s a three-bedroom semi. The vendor has told me that there is an extension at the rear, about three or four meters long. I think I did take another picture which shows from the side.
John Howard:
So, what are you going to spend on it? About 60 or 70 grand to refurbish it? Something like that.
Masud Saeedi:
I spoke to a few builders. Again, it’s hard to estimate. But about 90,000. I put a conservative figure.
John Howard:
Yeah, 90K. Okay, that sounds plenty to me. Okay. So, you’re in probably 400-ish. And you think it’s worth 500.
Masud Saeedi:
Yeah.
John Howard:
Okay, that sounds … Paul, do you want to start off and-
Paul Mahoney:
Yeah. I suppose, just to stress test some of those numbers, how confident are you in that sort of purchase price? Is that based upon your discussions to date?
Masud Saeedi:
Yeah, so I have spoken with the vendor around the price. No offer has been made just of yet because, as I mentioned, for the reasons, no access. And just a little bit-
Paul Mahoney:
Sorry, did you mention why there is no access?
Masud Saeedi:
After speaking with the vendor, he has told me that there were intruders or people who had gone into the property and changed the locks. So, he doesn’t have access to-
Paul Mahoney:
Are they still in there, or are they gone?
Masud Saeedi:
From what I understand, they have gone at the moment. And he’s recently, in the past few days, consulted with the police to get access to it.
Paul Mahoney:
You mentioned about you’re looking for 100% finance. I assume that would be either cash or a mixture of cash and finance to fund the deal?
Masud Saeedi:
Yes.
Paul Mahoney:
I suppose a question on that would be, you’ve done a deal before. Why is none of your own cash going in?
Masud Saeedi:
Because the property that I have just refurbished is on the market this week. I’ve just put it on. The carpets were fitted on Monday. Hopefully going to try and sell that within the next few weeks.
John Howard:
To be fair, Paul, that’s why he’s here, isn’t it?
Paul Mahoney:
Yeah, of course. Yeah. I suppose, from my perspective, personally, I’d always want a business partner to have some skin in the game, because otherwise it’s too easy to walk away if something goes wrong.
Ranjan Bhattacharya:
Yes, I think it’s an excellent find. I just wanted to prove a little bit how you found it, because this is off-market, isn’t it? This came from your advertising?
Masud Saeedi:
Yes. So, I put an advertisement on Facebook asking people within local areas within London, just West London-
John Howard:
Very clever. I like that. Yeah.
Masud Saeedi:
Yeah, and I asked them if they had or seen any properties similar to this. So, I just took a picture off Google, “If you find anything like this, overgrown garden, broken windows. The worst house you can think of, I’m interested. I’ll pay you 1,000 pound referral fee.” And I got a number of referrals.
John Howard:
Fantastic.
Ranjan Bhattacharya:
You’ve actually spoken to the seller, you get their motivation?
Masud Saeedi:
So, I’ve met with them twice so far. The reason I didn’t want to discuss the price is really because I felt it wasn’t necessary at that stage. I felt it was really just for me to get to know the vendor and to understand the story.
John Howard:
I like the tactics. I like it. Yeah.
Ranjan Bhattacharya:
I mean, all this stuff with planning for the loft. Have you actually considered just literally tidying up, making it into a nice family house-
John Howard:
And bang it out.
Ranjan Bhattacharya:
Bang it out, really quickly, and exiting and moving on?
Masud Saeedi:
Yes, I have. However, because we don’t have access, I don’t know what the interior looks like and I don’t know the layout. If I was able to have a look and I can see, okay, we can maybe change out a little bit of the … Maybe take a wall down or something.
John Howard:
It would just be a three-bedroom semi. Do it as quick as possible and sell it as quick as possible.
Ranjan Bhattacharya:
For me, this is a turning project. You turn it and move on.
John Howard:
Yep.
Ranjan Bhattacharya:
Because the opportunity here is the fact that you’ve sourced it off-market, you’ve sourced a distressed property. That’s where your uplift is coming from. And then it’s just turning it around and then banging it out as quickly as possible.
John Howard:
Clear it out, tidy it all up. Make it livable, but not spend … Spend 5,000 on it, not 40 or 50 or 60 and whack it in an auction.
Masud Saeedi:
That’s exactly what I was thinking as well, but I didn’t want to say it.
John Howard:
That came from the seminar as well, I expect.
Helen Chorley:
I love the area. I’ve literally just funded a deal very similar to this in that area, so it’s a great choice. And I love the way your mind thinks kind of outside of the box. There’s kind of maybe two things for me that I’m a little hesitant on. So, skin in the game is one of them, with Paul. The reason why I funded this previous deal there was because the chap that I work with, he’s got his thing, he’s got his patch. And he just … And I know and I’ve seen kind of the experience mix. I like your enthusiasm, I like you’re very real. Maybe a little too inexperienced for me. But could a great … As John and the guys say, could be a really great project for you.
Nicholas Wallwork:
I love things like this that are clearly rundown.
John Howard:
Straightforward.
Nicholas Wallwork:
Potentially straightforward. I think the word potential there-
John Howard:
Simple. Simple.
Nicholas Wallwork:
… Is, what are you going to find when we pull it back? If it is as simple as-
John Howard:
Oh, you worry too much, Nicholas.
Nicholas Wallwork:
… Plaster a few walls.
John Howard:
Goodness me. It’s a semi. What more do you want?
Nicholas Wallwork:
Well, it could have half the walls falling down.
John Howard:
It’s not even that old. It’s probably 1940, 1950s.
Ranjan Bhattacharya:
No, listen. I agree with Nick, it’s falling apart, mate. It could be absolutely falling apart.
John Howard:
You worry about crossing the road, some of you, don’t you? Goodness me. Come on. We’re meant to be entrepreneurs here. You know? We are risk takers, to a point, stacked in our favor. But we are risk takers. That’s how we’ve made our money.
Nicholas Wallwork:
I love taking risk. And I love the way you found the property, you know? It’s very creative. You’ve gone out there, you’ve got something off-market. I think that’s a huge selling point here because you’ve got time to cut the deal you want. It’s a tricky one.
John Howard:
Are you going to make an offer or not, Nicholas? What do you reckon?
Nicholas Wallwork:
I like the challenge, but I’m not sure-
John Howard:
It’s hardly a challenge. It’s a three-bedroom semi.
Nicholas Wallwork:
Well, you’re right.
John Howard:
Compared to some of the sophisticated deals you do, this is almost … Is it too simple for you or something? Can’t you see the wood for the trees? By the way, it’s all full of trees, I can understand why you can’t see-
Nicholas Wallwork:
I’ve always wanted a new shopping trolley.
Helen Chorley:
Literally.
John Howard:
Literally.
Nicholas Wallwork:
You know? I’ve always wanted a new shopping trolley, so that’s tempting. But I think it’s not one for me. And I’m trying to find the right reason why not, because it’s-
John Howard:
So am I.
Nicholas Wallwork:
I like the challenge. I think there’s just not enough detail. I think if you’d come today having seen inside the property and you’d got a proper builder’s quote and you knew there was no problems, then I could go, “Right, these numbers are real.” At the moment, it’s like, this 90 grand could be 150 or it could be 30.
John Howard:
Right.
Nicholas Wallwork:
And that’s the opportunity. I’ll let John take that opportunity, I think.
John Howard:
I’m making you an offer. And the offer is this. I’ll give you 25% share of the profit. I’ll buy it. We’ll show all this lot if they don’t want to make a bid, we’ll show them what a mistake they’ve made. If we can buy it for 275 or less, I will buy it, give you 25% share of the profit. That’s your first offer. Ranjan might better that.
Ranjan Bhattacharya:
I love this. It’s bread and butter. I love the way you’ve found it, I love the deal. I think there’s a great opportunity here with a quick in and out kind of flip. I think I can work with you and we can add some value to this. I think it’d be a lot of fun. So, I’m going to give you two alternatives.
Ranjan Bhattacharya:
Subject to it being structurally sound, I don’t care about the shopping trolleys, I don’t care if graffiti’s on the wall, the smellier the better, you know? That’s fine. But structurally, assuming structurally and we get it at that range, that’s fine. If I put in all of the money, then I am looking for a 75% share. If we are funding it with things like a bridge, and you put in half the thing and I put in half, I’ll go in with you 50-50. So, option A and option B. But I’d love to work with you. This is bread and butter. I love the West London area. I have a lot of comfort within the M25 as you’d know if you’ve seen my YouTube videos.
Masud Saeedi:
Yeah.
Ranjan Bhattacharya:
And I think this is … I love the way you found it. It’s off-market.
Masud Saeedi:
Cheers.
Paul Mahoney:
For you to understand what that would mean from you, that would be about 50 to 60 grand at least from you on the bridge idea. I would have made quite a similar offer. And I don’t think I can beat it, so I’ll leave it where it is.
John Howard:
You’ve got a very straightforward offer from me. Straightforward, no messing. We do need to get in, look at it. The only issue I would say is, some of the trees are quite close to the building and they might have gone under foundations. That would be an issue. But if it is, it’s an issue for everyone buying it, in which case, the price comes down accordingly. You’ve got a similar offer from Ranjan. You will go 50-50, if you put-
Ranjan Bhattacharya:
50-50 in on a bridge.
John Howard:
If you put 50 grand in, is what you’re saying.
Ranjan Bhattacharya:
All in, 75-25.
John Howard:
You better decide what you want to do. Take it, not take one, not take the other, walk away. Up to you.
Masud Saeedi:
Do I have any time to make a decision?
John Howard:
Yeah, please do. You’ve got about a minute. I’d have a think about it.
Nicholas Wallwork:
Talk to the picture over there.
John Howard:
Talk to the picture. Talk to yourself and come back.
Ranjan Bhattacharya:
Talk to Mountbatten or Kennedy.
John Howard:
It’s easier when you’ve got a partner.
Nicholas Wallwork:
Wonder if the YouTube pitch helped you there, Ranjan.
John Howard:
I’d be gutted if that helps you. I tell you what, if I lose this-
Ranjan Bhattacharya:
Lose it again.
Helen Chorley:
Pipped again on the YouTube.
John Howard:
If I lose this, I’m going home early. I’m throwing my toys out of my pram if I lose this. Big moment, drum roll.
Masud Saeedi:
So, Ranjan, I just want to say thank you for your offer. But I’m going to have to go with John, just for the basis that I wouldn’t be able to put up the 50 grand to cover the costs. So, John, I’d like to accept your offer, if that’s okay.
John Howard:
Thank you very much. Excellent. Excellent.
Elizabeth Warburton:
Did we get a deal?
Masud Saeedi:
Yes, we did.
Elizabeth Warburton:
Fantastic. Tell us what happened.
Masud Saeedi:
I managed to get two offers, one from Ranjan and one from John.
Elizabeth Warburton:
Brilliant.
Masud Saeedi:
I actually came today to find one joint venture partner. And it was nice to see that there was more interest.
Elizabeth Warburton:
So, how did it end up?
Masud Saeedi:
So, I managed to get exactly what I wanted. A little bit less on the profit split. But nevertheless, we’re still going to go through with the deal, which is what I came here today to do.
Elizabeth Warburton:
Excellent. And you get the experience of John as well.
Masud Saeedi:
Exactly.
Elizabeth Warburton:
Brilliant. Well, good luck with the whole process.
Masud Saeedi:
Thank you, Lizzie.
Elizabeth Warburton:
Charlie, welcome to Property Elevator.
Charlie Van Den Berg:
Thanks for having me.
Elizabeth Warburton:
Tell us a little bit about the deal and what you’re after today?
Charlie Van Den Berg:
I’m after an investment of 750,000 pounds for the purchase of land, and then construction of nine new residential apartments in Kingston, South West London.
Elizabeth Warburton:
And is there anybody in particular that you’re looking at investing today? Or would you be happy with any of our angels?
Charlie Van Den Berg:
I would be happy with any of them, preferably a team effort. It’s always beneficial to have more than one investor.
Elizabeth Warburton:
Okay, great. So, you’d like a couple if possible?
Charlie Van Den Berg:
If possible.
Elizabeth Warburton:
Lovely. All right. Well, good luck.
John Howard:
This is a site in Kingston upon Thames. That’s what it’s going to look like, presuming it’s done. How nice is that?
Helen Chorley:
Wow.
John Howard:
That’s lovely, isn’t it?
Helen Chorley:
Yeah.
John Howard:
I like that design. Charlie, thank you very much for coming in to see us. Please tell us as much as you can about you briefly, and also about what you want funded today?
Charlie Van Den Berg:
Okay. The project is The Firs. It’s in Hampton Wick in Richmond upon Thames Borough. What I’m asking for is 750,000 pound investment for a 50-50 equity split in the project. It’s the new build of nine apartment units. The land itself is clear, it’s vacant, stripped. It has planning permission. It’s very much ready to build on.
Charlie Van Den Berg:
The GDV as estimated by Savills was 5.2 million pounds. I’ve taken a more conservative view on it based on a bit of local research and local knowledge. And I’ve put in my figures at 4.9 million. I’m estimating that over 18 months of design and builds, we’ll split a profit of just over 600,000 pounds. In my calculations, I’ve allowed for the CIL costs. There’s stamp duty, and HA fee, Section 106 agreement. I’ve included for our disposal costs of the units, and stamp and legal fees. And it would leave us, as I say, to split 600,000.
Charlie Van Den Berg:
The location of the flats is, I can’t stress enough, it’s second to none. We’re on the border of Bushy Park, which for those who don’t know, is the second largest park in London. We’re a 30 second walk from the River Thames. There are local rowing clubs, yachting. It’s 500 meters from a local train station, which is Hampton Wick. I grew up in the area. It’s local to me. I went to school about 5-10 minutes walk away from the site. I used to cycle past it every day on my way to college.
Charlie Van Den Berg:
My best friend’s dad had a construction company and we used to do small residential conversions extensions. I then went to college. I did a B. Tech in construction. I got a degree in construction. I worked in The States for a year in Arizona. I was building a five billion dollar semi-conductor plant for Intel. I came back to the UK and I’ve been working for some of the largest developers and most prestigious developers in the country.
Charlie Van Den Berg:
I recently finished a 49 unit development in St John’s Wood about three, four years ago. I finished a development just down the road from this one on the other side of the river. It was 350 units for The Berkeley Group. I own a property in Twickenham as well, which I’m happy to give a second charge on for yourselves as a bit of security. I welcome any questions on the project, myself, anything else you care to ask.
John Howard:
Thank you, Charlie. Your back story is excellent. And clearly you know exactly what you’re talking about, which is refreshing. So, thank you very much for coming today. To have someone of your quality and your experience and your qualifications is great. It’s great for the show and it’s great for us as investors as well.
Nicholas Wallwork:
Have you got an offer on the dev finance at the moment from a bank?
Charlie Van Den Berg:
Not from a bank, from a broker. He’s agreed that we’d need 750K equity. And they would put in the rest.
Nicholas Wallwork:
And is that, that three million, is that including the purchase price? It’s a land and then development loan? Two phase?
Charlie Van Den Berg:
Yes.
Nicholas Wallwork:
Yep, okay. Are there any PGs on that? Personal guarantees.
Charlie Van Den Berg:
They haven’t said anything about it.
Nicholas Wallwork:
I think there will be.
Helen Chorley:
There will be.
Nicholas Wallwork:
Worth double-checking.
John Howard:
I expect there will be. But that’s not necessarily your problem, so don’t worry.
Helen Chorley:
Standard.
Nicholas Wallwork:
Have you got an application in principal on you as a-
Charlie Van Den Berg:
No.
Nicholas Wallwork:
That would definitely be something to do, depending on how much you’ve done in your own name before. You’ve done a lot for other people. But getting this level of finance as first, second, third deal would be very challenging.
John Howard:
But Nicholas, that’s why he’s here. I understand that.
Nicholas Wallwork:
So, you would us, just to clarify, if that’s why he’s here. You want the money, but do you want us as a shareholder in an SPV, so that we go on the finance with you?
John Howard:
Yeah, 50-50, he said.
Nicholas Wallwork:
Yeah, okay. And just on the second charge you’ve offered, what’s the value of that property and what equity is in it?
Charlie Van Den Berg:
So, my current equity is 50,000 pounds in the property. After the renovations are finished, which would be in three to four months, that will rise to between 200 and 220,000.
Nicholas Wallwork:
Okay. Thank you.
Ranjan Bhattacharya:
How many units is it?
Charlie Van Den Berg:
It’s nine units. So, it’s six one-beds and three two-beds. And they’re quite sizeable units. The penthouse itself is a two-bed. But it’s 100 meters squared.
Paul Mahoney:
What’s about the average values for the one-beds and the two-beds?
Charlie Van Den Berg:
It must have been about 760 pounds a square foot. Each one is circa 750 square foot. Must be between 500 and 700,000.
John Howard:
So, yeah, they’re big one-bedders, aren’t they? Have you used a planning consultant on this?
Charlie Van Den Berg:
No, no. It wasn’t me that got planning.
John Howard:
It’s already got planning before you’ve got involved.
Charlie Van Den Berg:
Yes.
John Howard:
Okay. And have you agreed the deal in principle?
Charlie Van Den Berg:
No. Not with the owners of the land because I don’t have the finance.
John Howard:
No, but it’s available and we can jump all over it Monday if we want?
Charlie Van Den Berg:
Yes.
John Howard:
Great. Okay.
Paul Mahoney:
And it’s on for the 1.85, is it? Or that’s where you think you’ll get it for?
Charlie Van Den Berg:
It’s on for 1.85. I spoke to the agent, they had a couple of low ball offers.
Nicholas Wallwork:
And those were refused, I guess.
Charlie Van Den Berg:
Yes.
Nicholas Wallwork:
What were the offers, do you know?
Charlie Van Den Berg:
They didn’t divulge. They just said they were too low.
John Howard:
One way or the other, you can normally find out, because that’s really important. Knowledge is power and to know what someone else has bid and it’s been refused gives you an indication. It might be, you might have been able to come in here, for instance, and said, “Look, I think I can get it 1.75 because I think they turned down 1.72,” or whatever it might be.
Ranjan Bhattacharya:
It seems that the sizes that you’ve described for each unit are over the London plan minimum. And I wonder, because most developers would seek to just do the London plan for the one-beds, London plan for two-beds. Because the current owners have not managed to get the density they require for the site, I wonder whether that’s the reason why they’re selling it on. And I wonder whether that is actually one of the reasons why the profitability is not as high as I’d expect from a site in this location.
John Howard:
Maybe the person’s put this planning application in, just asked the architect to whack a planning application in to get planning in order to sell it, and hasn’t put a lot of effort into it. But that’s what you need to know, because then you know there’s a better angle. You know there’s an angle then where you can improve the planning. You could then come into us today and said, “Look, at the moment it’s this. But I’m going to turn it into this. And if I do this, it’s going to be worth that much more money. And I’ve spoken to the planners. And the planners in principle are happy with it.” That’s what we needed to hear.
Nicholas Wallwork:
It could be a huge opportunity here by the land owner just saying to the architect, “Whack in a reasonable plan.”
John Howard:
Well, I think that’s what we need to know.
Nicholas Wallwork:
And the architect hasn’t got any decent brief from a trained developer.
John Howard:
Exactly, they’ve just used their ego and used their usual-
Nicholas Wallwork:
Yeah, made it look nice.
John Howard:
One, I love the idea there’s a park nearby, because people realize they need to be near an open space if they have a lockdown in COVID in the future, who knows? People are … Any site development near a big park, I think is a real bonus. And I think going forward, it will continue to be a bonus. For me at the moment, there’s just not enough profit in it. If it goes wrong, the market drops a little bit or whatever, you and I are going to be underwater. You’re not going to have anywhere to live because I’m going to take that off you, yeah? Because we’re going to be underwater. And if I don’t take it off you, the bank will.
John Howard:
I would have been very interested in this deal, very interested, if you’d come in and said, “There’s an uplift here, uplift there. I’ve spoken to them, spoken to them. And by the way, it’s a million profit,” not 600. Then, if something goes wrong, I like to think I can still make 500 grand out of it.
Helen Chorley:
To put the figures that I’m looking at on that, the 600 grand profit on your GDV of 4.9 is 12% return on GDV, 40% return on cost. It’s very tight. I don’t think it’s beyond the realms of expectation that we see a 10% or more dip in prices, particularly on a timeframe of 18 months. And is 18 months, you think that’s to build? Or you imagine that they would be sold in that time as well?
Charlie Van Den Berg:
To sell as well.
Helen Chorley:
To sell as well, okay.
John Howard:
I would always leave a year to sell them. Year to build, year to sell is how I would look at that. And I think, Helen, you mentioned it earlier with someone else that’s the same thing.
Helen Chorley:
Yeah, exactly. I’ve got stuff that I was told was going to be done in kind of 12, 18 months, four years on. Yeah, so anyway, let’s not go there.
Paul Mahoney:
I think you need to consider the exit on these as well, especially with the current planning, you know? I’ve got quite a lot of experience in the sale of properties off plan. And these wouldn’t sell off plan because they’re not really investment stock. They’re owner-occupier stock.
John Howard:
Do you know what, Paul? Some people do like to own and live in a property. They don’t always want to bloody buy the buy to let.
Paul Mahoney:
That’s what I’m saying. If you let me finish my point, John, I’ll tell you that.
John Howard:
Obsession with buy to let.
Paul Mahoney:
I think these owner occupier stock-
John Howard:
Totally, yes.
Paul Mahoney:
The yields on them won’t be great.
John Howard:
No tenants in there, great.
Paul Mahoney:
And owner occupiers don’t really buy off plan. I would agree that you want to account for six to 12 months to sell them once they’re done. And that drags this deal out quite a bit and just eats too much into that 12% margin.
John Howard:
The one other thing you have to remember when you’re building or converting a flat or block of flats, you have to get it all finished before you can sell one, even if you get people who exchange contracts with you prior. No one is going to give you the full amount of money until they have a completion certificate in their hand. You cannot get a part-completion certificate for a block of eight flats, nine flats. You have to get it totally finished, which means all your money’s out before you get any in. So, as you know, it’s not like a housing estate where you can build 10 and you’ve got another 20 left to go and you can phase it. You can’t phase it.
John Howard:
So, unfortunately, on this occasion, I won’t invest. However, I want you to keep in touch with me because you’re bright, you’re intelligent, you know what you’re doing. All you need to do is come up with a slightly better deal and I will definitely like to think I would invest in you.
Charlie Van Den Berg:
Okay.
John Howard:
So, I’m out.
Helen Chorley:
I’d back up what John said that it’s very clear, you clearly completely on top of the numbers here. And I like, you’ve rounded down from what the estate agent said. So, that conservative, that realism that you’ve brought to it is very reassuring. I agree with what Ranjan said that actually the value in this would have been the planning. And that’s the juicier part of the deal. But those return on GDVs in this market is just too tight for me. So, it’s not for me this time. Thank you.
Nicholas Wallwork:
I love the look of the site, I love the location. I think you are highly investible. I think you’re going to go on and do great things in property off your own back, rather than working for someone else. You’ve got that background, that education, that knowledge to then go and turn that into practical use. So, that’s exciting for you. I’m not a home builder. I’m an investment builder. I like to build investment buildings that create huge yield. I don’t want to build someone’s high luxury home anywhere. So, it’s unfortunately not the deal for me. But I think you will do very well. And good luck with this one, if you get it done, or your future.
Ranjan Bhattacharya:
I’m not really going to sort of add anything. I think you’re a great entrepreneur. This is just the wrong deal for me.
Paul Mahoney:
And just to echo what the guys said, I think we would all feel comfortable JV-ing with someone like you. And you’re the type of person we would want to be overseeing a project like this. But just this particular project, the way it’s set up, the margin just isn’t good enough.
John Howard:
Charlie, thank you very much for coming today. And I wish you all the very best, because I’m sure you’ll be very successful. And please keep in touch, because I think we may well be doing something together in the future if we can.
Charlie Van Den Berg:
Thanks a lot.
Helen Chorley:
Thank you, Charlie.
Nicholas Wallwork:
Thank you.
John Howard:
Thank you.
Elizabeth Warburton:
So, Charlie, tell me how it went.
Charlie Van Den Berg:
It didn’t go well because I didn’t get the investment. But other than that, it went well. They liked the opportunity, but it just didn’t have the margin in it for them.
Elizabeth Warburton:
Right, okay. So, just a little bit too small a profit.
Charlie Van Den Berg:
Yes.
Elizabeth Warburton:
Right, okay. So, what’s your next steps then with the deal?
Charlie Van Den Berg:
The next step is to go back to the vendor and see if I can get a better price on the land and hopefully make it stack up a little bit better for me.
Elizabeth Warburton:
Okay. And what? Then you’ll be back in touch with them?
Charlie Van Den Berg:
Hopefully.
Elizabeth Warburton:
They’ve said to keep in touch.
Charlie Van Den Berg:
They said keep in touch, and I plan to do so.
Elizabeth Warburton:
So, Christina, welcome to the show. It’s great having you here.
Christina Harrison-Flunn:
Thank you very much. I’m delighted to be here.
Elizabeth Warburton:
Tell us a little bit about your deal and what you’re after today?
Christina Harrison-Flunn:
I already own a site in Central Coventry. It was originally a restaurant. And I’m in the process of demolishing it. I’ve got full planning consent to build 18 apartments above a commercial unit. And I require the funding to help me do that.
Elizabeth Warburton:
Fantastic.
Christina Harrison-Flunn:
It is the biggest project I’ve done to date. So, that’s the reason that I think I’m going to get the best value out of using one of the angels to help me do that.
Elizabeth Warburton:
Excellent. Yeah, with their experience and track record. Yeah.
Christina Harrison-Flunn:
Absolutely.
Elizabeth Warburton:
Well, good luck.
Christina Harrison-Flunn:
Thank you.
Elizabeth Warburton:
Got my fingers crossed for you.
Christina Harrison-Flunn:
Thank you.
Elizabeth Warburton:
I’ll have a little chat to you when you get out.
John Howard:
Christina would like us to invest in Coventry, which I was there recently speaking at Coventry University. And actually, I was very impressed with the city. It’s come a long way. The university’s right in the center. And this is close by, I think. And it’s a demolition and rebuild. I feel like I’m doing her job for her. Shall we get her in?
John Howard:
Hi, Christina. Thank you very much for coming in today. Have you come all the way from Coventry?
Christina Harrison-Flunn:
I have today. Yes, I have because I’ve been on site today.
John Howard:
Do tell us a bit about yourself and about the development you’d like us to try and fund for you.
Christina Harrison-Flunn:
Myself, I am a property developer. I’ve been a property developer for the last two years full-time. I am, probably describe myself as a creative and very resilient individual. I’ve seen some ups and downs in my time with property. And I do have a blend of strategic operational and technical skills. I have a technologies background. That was what I did as a career.
Christina Harrison-Flunn:
So, today I’m here to offer you the opportunity to work with me on a project that, as you have seen from the pictures, is already started. I went through the process with my wife. We bought the site from a gentleman who wanted to retire. And having bought the site and took it through the planning consent process, got full planning for 18 apartments above a commercial unit. Having got the consent, then went through the process of having the demolition at least started. It’s due to complete around the 7th of September.
Christina Harrison-Flunn:
I set about thinking about how to fund the project. And I realized that, because it’s my largest project, and possibly because of the slight complexity in that we bought the property in our Corus pension. So, I off shored our pensions and we consolidated and we bought the site into that pension fund. So, I felt that the standard debt model might be a little bit more challenging because of that. And also, because I don’t have demonstrable experience of projects of this size.
Christina Harrison-Flunn:
So, having purchased this and spent money on it, we’ve invested so far a million pounds approximately. And I’m looking today for two million pounds worth of development funding to enable us to complete that, with a calculated GDV of 3.8 million upwards. I believe it represents a good deal to one or more of you to assist in creating that product for me.
Christina Harrison-Flunn:
Our intention is to create it as serviced accommodation. The full planning consent is for sui generis on that basis. And each of the apartments is totally self-contained. I’m unsure at the moment what we do with a commercial unit. And I’m also a little bit more flexible. It doesn’t have to be that. The site actually sits on the cusp of, almost in the heart of a 350 million pound regeneration scheme, which went to public consultation, completed last month, is expected to go for full planning in September, with the expectation of a decision Q1 next year. And then, beyond that, there will be developers on site. So, I see that as a huge opportunity for serviced accommodation to have a much higher demand for people needing to be very close to that site for quite a period of time.
John Howard:
Why did you buy it in the first place?
Christina Harrison-Flunn:
The commercial agent who introduced me to this was the gentleman that sold me the HMO.
John Howard:
Right, yep.
Christina Harrison-Flunn:
And I’d approached them regarding a number HMO possibilities they’d had. And he came to me and said, “Would you be interested?”
John Howard:
Was it on the market?
Christina Harrison-Flunn:
It wasn’t on the market at the time. The owner was a personal friend of his.
John Howard:
Okay, excellent. That’s the first question. Had they said if there were any grants available potentially for your development, if it happens?
Christina Harrison-Flunn:
That’s a very good question, actually. Not for my development. But they’ve already announced a 100 million pound grant for the larger development. I have to say, I’ve not approached them for a grant for the development. I didn’t know that-
John Howard:
Okay, that’s something I would definitely look into.
Paul Mahoney:
So, the 3.8 million GDV, that’s based upon a commercial valuation for the serviced accommodation rent, is that right?
Christina Harrison-Flunn:
It is. And it’s based on an assumed occupancy of 70% and a yield of 6.5%. So, I was trying to sort of keep that more realistic.
Paul Mahoney:
Do you know what the bricks and mortar valuation would be, as opposed to the commercial valuation?
Christina Harrison-Flunn:
I calculated 175,000 pounds per unit and circa half a million pounds for the commercial unit.
Helen Chorley:
The GDV is 3.8. okay.
John Howard:
3.8.
Christina Harrison-Flunn:
Yeah.
John Howard:
But that’s assuming a 6.5% yield on the commercial.
Christina Harrison-Flunn:
That’s right.
John Howard:
A rent of 38 grand or something.
Christina Harrison-Flunn:
I mean, I’ve done my research on the commercial yields. And what I wanted to do is just to make it work on what I thought was a more conservative level.
John Howard:
I think that’s probably … I mean, I obviously don’t quite know where it is in Coventry. But I think that’s probably a bit strong, unless you manage to get a national covenant, a good national covenant. I think any yield is probably likely to be 8% to a more local covenant in there. But you might get lucky, you might get a Tesco, 24-hour Tesco or whatever, in which case it would be lower than that. So, it’s difficult to pitch, I do appreciate that. How close is it to the university, please?
Christina Harrison-Flunn:
Five minute walk.
John Howard:
Five minute walk. Okay.
Christina Harrison-Flunn:
To Coventry University.
Nicholas Wallwork:
Just on the GDV, the 6.5%, that’s on all of the serviced accommodation as well, is it?
Christina Harrison-Flunn:
That is, yes.
Nicholas Wallwork:
Yeah, I think that is quite strong, then, for another operator coming in. Have you any experience of serviced accommodation? Why did you go that route with the planning and not just C3 apartments?
Christina Harrison-Flunn:
So, I mentioned that we purchased the property in the pension. You can only do commercial development through the pension.
Nicholas Wallwork:
Yeah, of course.
Christina Harrison-Flunn:
The idea is to develop it and to hold it and to operate. And clearly, one of the reasons that I’m here today is that I would like to be able to work with somebody who has got serviced accommodation experience to help me with that.
John Howard:
Interesting.
Nicholas Wallwork:
I’ve got a number of serviced accommodation blocks.
John Howard:
I thought he was going to soon mention that, yeah.
Nicholas Wallwork:
I think what you need to do is to go and find an operator to sign a pre-lease before you do anything more, because if you’ve got an operator that’s going to guarantee your income and guarantee your valuation, guarantee your finance and make the whole process a lot easier. If you go and build this with no operator, you’re going to be really stuck if you can’t find an operator. And you won’t really-
John Howard:
Why can’t you operate it yourself?
Christina Harrison-Flunn:
I hadn’t intended actually taking a full-time job of operating.
Nicholas Wallwork:
So, you might be looking for an operator as well, potentially. Okay, that’s good to know. We want to know why you’re here.
John Howard:
Very interesting.
Nicholas Wallwork:
What you need.
Paul Mahoney:
I like the serviced accommodation model. We were talking about it before. I have set up a serviced accommodation business, and I do like it. Just out of interest, with the Corus pension, so you bought it in your Corus. You off shored the pension, and then bought it in that structure. Is that right?
Christina Harrison-Flunn:
That’s right. So, I looked into it. And basically, Liz and myself, we consolidated our pensions into this qualified recognized offshore pension scheme. It’s based in Malta.
John Howard:
Fancy that.
Helen Chorley:
My part of the world.
Christina Harrison-Flunn:
In some respects, it was a very good model for developers, because you have the governance of your pension trustees, who’ve got your interests to look after. And so, I had to pitch the project to them, present the business plan before they would agree to fund the project. And then it was fairly straightforward beyond that.
Paul Mahoney:
Did you assess that against the SAS model?
Christina Harrison-Flunn:
The SAS model?
Paul Mahoney:
So far as establishing a small self administered scheme and lending the money out.
Christina Harrison-Flunn:
Going offshore had a number of other distinct advantages because you have lifetime limits in the UK. So, when you take it offshore, those lifetimes limits are eliminated. And the other main one is that, if either of us passed away, the balance of the Corus goes to one or the other without any tax implications, inheritance tax.
Nicholas Wallwork:
And they take a first charge over the property, I assume.
Christina Harrison-Flunn:
No, they don’t take first charge, they own the property. So, they are the shareholders.
Paul Mahoney:
It’s the SAS model that you need to take a charge.
Christina Harrison-Flunn:
Which means that for funding, whoever is putting up the development funds, they can take a first charge on it.
John Howard:
I may not be your obvious partner when you look around the room. However, I have just delivered 27 million pounds worth of development in Ipswich on time and on budget. I have a partner who’s very bright, much brighter than me. And I think he would be, and I would be, together we would be very interested in this. Maybe not exactly how you see it now. Maybe slightly differently. But if it would be slightly differently, it would be to your advantage.
Christina Harrison-Flunn:
Okay, I’m open to that.
John Howard:
I would be very interested in doing something with you. But I’m just going to think about it for a minute while one or two others say what they think, if I am.
Nicholas Wallwork:
If you can get a first charge on the building, have you explored any other standard development finance?
Christina Harrison-Flunn:
I had conversations with some of the funders that I’ve used already, including some that aren’t, if you like, the mainstream banks and so on. I’ve got quite a lot of commercial experience. I’ve executed a couple of option agreements in the past few years. And there’s a few that have failed and not worked at all. So, I can work my way around any kind of structure of deal. I’m comfortable in that space. And I’d be very happy to work with somebody who’s got more experience and can help, I suppose, present some of the possibilities that just aren’t in my head because I don’t have that.
John Howard:
No, and I can see that. And there’s something that I’m just mulling over, which I think might be more beneficial to us both.
Nicholas Wallwork:
I think you need to find a way of financing this, buying out the pension so you’ve got full flexibility to rejig the units out of sui generis. I think that would add a huge planning gain, personally.
Christina Harrison-Flunn:
So, I could switch … I don’t have to take it out of the pension to switch it from sui generis. That’s not the issue. It just means that I can’t keep them and let them out. I would have to sell them.
Nicholas Wallwork:
Keep them and let them, yeah. Okay.
Christina Harrison-Flunn:
That’s still a commercial activity. I don’t know what that does to the VAT though.
Helen Chorley:
I’m just going to state where I am. I was looking at kind of the 20% return on capital over the two years. And that wasn’t particularly where I’d be looking. But I didn’t realize it was for first charge basis, which does make a big difference in terms of the return I expect for the security. They’re very much interlinked for me. However, I’m not a serviced accommodation expert. I’ve got no desire to become one. So, I don’t think I’m the right person for this deal. But it’s very exciting. I love the centrality of the location. And I think you’re going to be spoiled for choice here, so best of luck with that.
John Howard:
Ranjan, have you got something to say? You’re being very quiet, especially for you. Very suspicious, Christina. When Ranjan’s quiet, he’s thinking very seriously.
Nicholas Wallwork:
Could be good, could be bad. We don’t know.
Ranjan Bhattacharya:
I love the centrality of the location. I mean, my geography outside the M25 is very poor. But I operate-
John Howard:
Never.
Ranjan Bhattacharya:
I operate by a simple postcode theory, where if it has two letters and a one, then that’s the center of town, wherever it is. What is the exit for the investor? Or are you looking for the investor to basically stay in after it’s built?
Christina Harrison-Flunn:
Well, I think that depends, because I am open to an alternative deal structure and variation on what we execute based on somebody else’s experience. There’s an obvious exit if it’s a build and sell.
Nicholas Wallwork:
Can I just drill down to your build costs? You’ve got sort of one line, 1.5 million, plus the prelims at half a million. Is that as much detail as you’ve gone into? I’m hoping there’s some serious research behind that.
Christina Harrison-Flunn:
No, no, I’ve got a full team on it. I’ve got a quantity surveyor. I’m just giving you the plotted highlights. So, I’ve got a very long set of detail. And the calculations in the summary give me the price per square foot. That’s what I’ve used there to provide you with that information.
John Howard:
Was there an archeological dig that’s required?
Christina Harrison-Flunn:
The only possibility is if we have to do anything … If there’s a likelihood or possibility that there’s any UXB or anything on it. We had a desktop survey. There’s a possibility we may have to once we get down to the bottom slab, to actually do a couple of drill holes to see.
John Howard:
Okay. Well, I’m ready to make you an offer, subject to a couple of things, because of course, on a deal of this size, the devil is in the detail, Christina. I hope you appreciate that. And whatever I say is subject to further due diligence on the deal itself because I need to look at it, analyze it, and so on. But in principle, I would like to offer you the money you’re looking for. And I would like to take 60% of the deal, not the 50%, 50-50 that you’re looking at. You’ve put your money in. You don’t need to put any more money in at all. We will put the rest in. We will develop it to the best of our ability, be it flats, be it serviced accommodation, whatever we agree together what we think is the best outcome. That’s my offer.
Christina Harrison-Flunn:
Thank you.
Nicholas Wallwork:
I don’t like the idea of funding an archeological dig site and whatnot, although that could be mitigated with a bit of time.
John Howard:
That’s a chicken noise, by the way, I’m making.
Nicholas Wallwork:
I think John would be an excellent partner for you. And I think that’s an extremely generous offer, which I couldn’t beat. So, unfortunately on that basis, I won’t be investing. But good luck. It’s an incredibly exciting site.
Paul Mahoney:
As I say, I like the serviced accommodation model. I like how central it is. John will probably make the bock, bock, bock noise again for me. But I like central locations close to big cities. And I think this ticks that box. It’s not necessarily a massive city. But given its centrality and what’s going on, I think that works. Again, I think it’s a very good offer my John, though. And I also think that John could probably add more value to the deal for you than I could. I like the end use. I think he can probably add more value to you to get it there. So, I’ll count myself out. But when it’s done, let me know, because we might operate it for you.
Ranjan Bhattacharya:
It’s very well thought out, it’s very exciting. But it’s not really my bag. But I think John has made you a great offer.
Christina Harrison-Flunn:
Thank you. I would like to accept that offer.
John Howard:
Thank you very much.
Elizabeth Warburton:
Okay, so looking at the smile, it looks like we got a deal.
Christina Harrison-Flunn:
We did.
Elizabeth Warburton:
Fantastic.
Christina Harrison-Flunn:
John made an offer. And it was an offer I couldn’t refuse. With a pedigree like his, I’m really looking forward to working with him.
Elizabeth Warburton:
That’s brilliant. I’m so, so happy for you. So, what are the next steps?
Christina Harrison-Flunn:
Well, he says we’ll start on Monday.
Elizabeth Warburton:
Well, nothing like the present, hey?
Christina Harrison-Flunn:
I’ll wait to see. Of course, we’ve got to finish the demolition, which is just a matter of a few weeks away now. And we’re going to have to sit down and look at the plans. He seems to think he’s got some ideas where we could get more value out of it. So, I’m really excited to find out what that is, with his experience. That’s what I was hoping for out of that sort of relationship.
Elizabeth Warburton:
Great. So, a great result.
Christina Harrison-Flunn:
Brilliant result, thank you.
Elizabeth Warburton:
So happy for you. Congratulations.
Christina Harrison-Flunn:
Thank you. Thank you so much. And thank you for staying behind and hearing me today. It’s been a pleasure.
Elizabeth Warburton:
Wow, another great day of deals, and a lot of very happy angels and property developers. As always, not all the deals could be taken over the line today. But we hope that those who didn’t make it have gone away with some great feedback. And hopefully, that little bit more confidence to make that next deal work. I’m Elizabeth Warburton, and you’ve been watching Property Elevator.